By PWC Tax Synopsis
Executive summary (SAIT Technical)
SARS has recently rejected pleas to extend professional privilege to tax practitioners in their communication with clients. According to SARS, tax practitioners are largely regulated by self-constituted professional bodies and not by law and that regulation by law would be a prerequisite for extending such privilege to tax practitioners.
In this article, PWC examines professional privilege the common law basis and the position in other countries.
SARS has recently rejected pleas for the draft Tax Administration Laws Amendment Bill to extend to tax practitioners the same professional privilege as is enjoyed by lawyers in their communication with clients.
SARS has taken the view that tax practitioners in South Africa are, in the main, regulated not by law but by self-constituted professional bodies and that regulation by law would be a prerequisite for extending a limited privilege to tax practitioners. A SARS spokesman is reported as saying that this issue will be revisited in about eighteen months when the model of regulation is evaluated.
This was a rather unexpected response by SARS in that the conventional reason given for limiting privilege to legal advice given by a qualified lawyer has nothing to do with the nature of the regulatory body to which that person is professionally accountable, but rather with the necessity, as a matter of public policy, for a client to feel free to make full and frank disclosure - including information that is adverse to him – when seeking legal advice, without fear that the tax authorities will later demand access to the written communications to and from that adviser.
The present position
As matters stand, a taxpayer cannot refuse to disclose to SARS tax advice given by an accountant or tax practitioner (as distinct from an advocate or attorney) or the documentation that records or accompanies such advice. (See for example Chantrey v Martin  2 All ER 691.) Nor can the taxpayer refuse to furnish SARS with bilateral communications with his accountant or tax practitioner.
This is, of course, a matter of great concern to the accounting profession and the enbryonic profession of tax practitioners, for it inhibits their relationship with clients and the giving of advice, in that such advice may record factual disclosures made by the client which would be to his disadvantage if they came to the knowledge of SARS – as would occur in the context of a tax dispute if SARS were to demand that the taxpayer make available all non-privileged documents, or in the context of litigation where a litigant is obliged to disclose and make available for inspection all non-privileged documents.
The lack of privilege enjoyed by accountants and tax practitioners applies even where the advice given is legal advice. Thus, advice given by an attorney or advocate to a client will enjoy privilege whilst the self-same advice, if it were given by an accountant or tax practitioner, will not.
The common law basis of legal professional privilege
Legal professional privilege is a common law concept that applies to advice given by an attorney or advocate (so-called "advice privilege”) or advice given by an attorney or advocate to a client (or, indeed, to a third party) in anticipation of litigation involving that client ("litigation privilege”). Such privilege has been recognised and applied by the South African courts in a tax context; see for example Heiman, Maasdorp and Barker v Secretary for Inland Revenue (1968) (30 SATC 145 and Jeeva v Receiver of Revenue, Port Elizabeth 1995 (2) SA 433 (SE)).
In S v Safatsa (1988) (1) SA 868 (A) the Appellate Division described legal professional privilege as a fundamental right that is necessary for the proper functioning of the legal system in South Africa.
The underlying rationale
The rationale for legal professional privilege was explained as follows by Lord Hoffman in R (on the application of Morgan Grenfell and Co Ltd v Special Commissioner of Income Tax  UKHL 21, who said that such privilege –
"is a fundamental human right long established in the common law. It is a necessary corollary of the right of any person to obtain skilled advice about the law. Such advice cannot be effectively obtained unless the client is able to put all the facts before the adviser without fear that they may afterwards be disclosed and used to his prejudice.”
On 29 October 2012 in Stewart v Australian Crime Commission  FCAFC 151 (which concerned the long-standing dispute between the actor, Paul Hogan, of Crocodile Dundee fame, and the Australian Tax Office) the Full Federal Court of Australia referred with approval to the decision of the High Court of Australia in Grant v Downs  HCA 63; (1976) 135 CLR 674 where Stephen, Mason and Murphy JJ said at 685 –
"The rationale of this head of privilege, according to traditional doctrine, is that it promotes the public interest because it assists and enhances the administration of justice by facilitating the representation of clients by legal advisers, the law being a complex and complicated discipline. This it does by keeping secret their communications, thereby inducing the client to retain the solicitor and seek his advice, and encouraging the client to make a full and frank disclosure of the relevant circumstances to the solicitor. The existence of the privilege reflects, to the extent to which it is accorded, the paramountcy of this public interest over a more general public interest, that which requires that in the interests of a fair trial litigation should be conducted on the footing that all relevant documentary evidence is available. As a head of privilege legal professional privilege is so firmly entrenched in the law that it is not to be exorcised by judicial decision.”
Legal professional privilege is widely recognised in other countries
Legal professional privilege has been recognised in the European Union. In Campbell v UK (1992) 15 EHRR 137 and Foxley v UK (2001) 31 EHRR 25 it was held that interference with the privacy of a person’s communication with his lawyer would violate article 8 of the European Convention on Human Rights.
Privilege is a matter of substantive law, not of evidence or procedure
The modern view is that legal professional privilege is a matter of substantive law, and not of evidence or procedure.
Thus, in Daniels Corporation International Pty Ltd v Australian Competition and Consumer Commission (2002) HCA 49, (2002) 213 CLR 543, the High Court of Australia, per Gleeson CJ, Gaudron, Gummow and Hayne JJ, said that the privilege is a rule of substantive law and is not merely a rule of evidence that is restricted to the processes of discovery and inspection and the giving of evidence in judicial proceedings.
The complexities involved in extended legal professional privilege
In R (on the application of Prudential plc) v Special Commissioner of Income Tax  EWCA Civ 1094 the English Court of Appeal refused to extend legal professional privilege to accountants for the following reasons:
(a) Legal professional privilege is linked to the status of the adviser and applies only to communications between a qualified lawyer and client.
(b) The decision of the Court of Appeal in Wilden Pump Engineering Co v Fusfeld  FSR 159) that, at common law, legal professional privilege applies only to advice given by lawyers, is a binding precedent.
(c) If legal professional privilege is to be extended to the accounting profession, the complex question of how to define that profession and whether the privilege should then be further extended, for example, to pension consultants, would best be decided by parliament and embodied in legislation, rather than by an adaptation of common law principles by the courts.
It is unlikely that South Africa will depart from established international norms
It should be noted that the United States of America and New Zealand have afforded professional privilege to information passing between a client and his tax advisor by statutory enactment. The United Kingdom also provides a limited statutory privilege in relation to communications between a tax advisor and the client. Although the law in these respective jurisdictions does not operate to allow the same extent to the statutory privilege as applies under the common law, it provides a level of assurance to persons who consult tax advisors.
In the present circumstances, it seems unlikely that any extension of legal professional privilege in South Africa will be effected by the judiciary and any change to the common law principles in this regard is likely to be effected by legislation, perhaps after a full commission of inquiry.